20211119-招银国际-Upbeat_guidance_on_profitable_growth_in_2022E__raising_earnings_forecast_and_TP_8页_1mb

ZTO Express (ZTO US) Company Update Summary

Core Content

ZTO Express (ZTO US) has been highlighted in a recent equity research update by CMB International Securities. The report reiterates a BUY rating and raises the target price (TP) from US$39.5 to US$44.0, reflecting improved outlook for the company's profitability and growth. The company is expected to focus on profitable growth in the future, with net profit growth outpacing revenue growth. The management is confident in expanding its market share, which stood at 20.8% in 3Q21.

Main Points

• 3Q21 Earnings Highlights:

  • Pretax profit grew 17% YoY to RMB1.38bn, driven by 11% revenue growth and 0.3ppt gross margin expansion.
  • Net profit slightly dropped 3% YoY to RMB1.17bn, primarily due to the absence of a tax refund in 3Q20.
  • SG&A expenses increased only 4% YoY, indicating strong cost control.
  • Unit cost dropped 6.7% YoY in 3Q21, with sorting hub cost decreasing 2% YoY and transportation cost falling 6% YoY.
  • The company expects a 4% YoY unit cost reduction in 2022E.

• ASP and Volume Trends:

  • Parcel volume in 3Q21 grew 23% YoY to 5.7bn units, aligning with the industry average.
  • Parcel delivery ASP dropped 7% YoY to RMB1.24/unit, but increased 2.5% QoQ.
  • The ASP decline was partially offset by cost reductions, with ZTO achieving better than industry average ASP reduction in 3Q21.

• Earnings Forecast Revisions:

  • Earnings for 2021E, 2022E, and 2023E are revised up by 1%, 8%, and 5% respectively.
  • The revision is based on increased ASP assumptions, which fully offset the lower volume projection.

• Valuation:

  • The target price is raised to US$44.0, based on a new target multiple of 35x.
  • The forward P/E has historically ranged between 24x–45x, and the current P/E is seen as a defensive level.
  • The company's profitability is expected to improve due to ASP recovery and cost advantages.

• Financial Summary:

  • Revenue is projected to grow steadily from RMB22,110mn in FY19A to RMB40,947mn in FY23E.
  • Core net profit is forecasted to rise from RMB4,979mn in FY19A to RMB8,201mn in FY23E.
  • EBITDA margin is expected to improve, reaching 33.2% in FY23E.
  • The company maintains a net cash position in its balance sheet, with BVPS increasing from RMB48.98 in FY19A to RMB76.39 in FY23E.

• Key Ratios:

  • Gross margin improved from 21.9% in FY21E to 28.2% in FY23E.
  • Net profit margin is expected to rise from 15.5% in FY21E to 20.1% in FY23E.
  • ROE is projected to increase from 9.4% in FY21E to 13.5% in FY23E.
  • Current ratio remains stable, with a value of 1.7–1.8 in FY21E–FY23E.

• Risk Factors:

  • Further slowdown in online retail sales.
  • Volatility in ASP.
  • Increase in diesel prices.

Key Information

• Market Share: ZTO's market share in China reached 20.8% in 3Q21.
• Cost Efficiency: ZTO's unit cost is expected to decrease by 4% YoY in 2022E, driven by investments in automated sorting equipment and high-capacity trucks.
• Investment in Infrastructure: The company has continuously invested in capex to capture demand growth and improve efficiency.
• Shareholding Structure:
  • Meisong Lai: 25.6%
  • Alibaba: 8.6%
  • Others: 65.8%
• Stock Performance:
  • 1-month return: 1.7%
  • 3-month return: 19.8%
  • 6-month return: 0.5%
• Valuation Metrics:
  • P/E: 24.8x (FY22E)
  • P/B: 2.9x (FY22E)
  • EV/EBITDA: 13.3x (FY22E)

Conclusion

ZTO Express is positioned to benefit from the recovery of ASP and cost optimization. With a focus on profitable growth, the company is expected to gain market share and deliver strong returns. The BUY rating is maintained, with a target price of US$44.0 and an upside of +39% from the current price of US$31.58. The company's strong execution and cost advantages are seen as key drivers for long-term success in the express delivery sector.